Question: Our president recently suggested we penalize salespeople for not meeting their goals by taking commissions away from them. Do you have any thoughts on this type of disciplinary action?

Answer: Wow. My initial reaction is that the suggestion sounds very harsh. Put that way and you are liable to lose 90 percent of your salesforce, just on the threat alone. But, let’s spend some time thinking about this.

If you mean that you want to take back money that you have already paid, I can’t imagine that you could, or would do that. If, for example, you paid a salesperson $20,000 in commissions during the year along with a salary, and now, at the end of the year, you are penalizing him for not making goals, and asking for the $20,000 back?

My guess is that is illegal. I certainly do not recommend it. As the employer, you are expected to take some risks with every employee. The $20,000 that you paid the salesperson was paid. It’s his, not yours.

So, hopefully that’s not what you meant. Maybe this is the scenario: You have set up a salary and commission program. Let’s say the commissions are 4 percent of sales, paid on every dollar of sales. The salesperson has a goal to do $500,000 in sales. He actually does $400,000. The next year, you reduce his commission rate to 3 percent of sales, thus “penalizing” him for not meeting his goals.

I have less of a problem with that, but I’d like for you to build in some incentives, as well. How about something like this: A 3 percent commission rate on all sales up to $400,000; a 3.5 percent commission rate on all sales between $400,000 and $500,000; a 5 percent commission rate on all sales higher than $500,000.

That protects your risk, but also gives the salesperson an incentive to meet his or her goal.

In general, I believe it is your responsibility, as the employer, to take the risk of a salesperson that underperforms. Rather than attempt to take money away from him, I’d rather see you work with him to help him become successful. If he cannot meet your expectations, then terminate him from that position and search for someone more suitable.

Once you set up a compensation plan, you are, I believe, obligated to meet the terms of that plan. That doesn’t mean that you can’t change the plan. But it does mean that you can’t decide, after the fact, to reinterpret the plan. If your plan is flawed, then change the plan for all future work, but pay for work up to today according to the plan that you set up.

There is one place where I think it is legitimate to reduce or deduct something for the salesperson’s commission. That is in the case of a sale wherein the commissions have been paid, but the invoice has not been paid by the customer.

In that case, I think it is perfectly appropriate to reduce the salesperson’s commissions by the amount that you have already paid him for the sale that, in reality, didn’t happen. That’s different than charging him some of the costs for the inventory that was shipped, etc. I’m only talking about the sales commissions he was paid on that sale. 

Dave Kahle is one of the world’s leading sales authorities. He’s written 10 books, presented in 47 states and 10 countries, and has trained tens of thousands of salespeople and sales leaders. He can be reached at dave@davekahle.com. Visit www.davekahle.com for more information of sign up for his weekly Ezine.




POSTED ON: 2/18/2014